Infrastructure Changes and Cost to Increase Consumption of E85 and E15 in 2017

Congress legislated both the 2005 Renewable Fuel Standard (RFS) and the updated 2007 Standard (RFS2) as a mechanism to mandate the phasing in of renewable biofuels into U.S. transportation fuels. On an annual basis, the administering agency, the U.S. Environmental Protection Agency (EPA), is expected to propose and finalize new volume obligations for the four RFS categories of cellulosic biofuels; advanced biofuels, biomass-based diesel and total renewable biofuels. Ethanol has become the predominant biofuel used to meet three of the four RFS2 categories. Ethanol can be used in transportation fuel when it is blended with gasoline at various levels. The most popular of these has been E10, which is 10 percent ethanol and 90 percent petroleum blendstocks. Ethanol can also legally be blended as E15, a blend of up to 15 percent ethanol, or as E85. E85 can contain 51 to 83 percent ethanol blended with petroleum blendstocks or natural gasoline. E85 can only be used in Flexible Fueled Vehicles (FFVs). FFVs comprise about eight percent of the nation’s transportation vehicle fleet.

As the RFS2 mandates for ethanol have risen, the nation has begun to approach the so-called E10 blendwall, that point at which nearly all of the nation’s gasoline has been blended at the 10 percent ethanol level. To get around the E10 blendwall, it is necessary to find pathways to blend more than 10 percent ethanol into ever larger portions into the nation’s gasoline pool. E15 and E85 are the primary pathways to increase ethanol consumption beyond 10%.

In its latest RFS2 proposal for 2017, EPA has proposed standards that result in modest increases in ethanol usage but has discounted the additional contribution from E85 and E15. Growth Energy has requested that Stillwater Associates examine the distribution infrastructure for pathways to potentially increase the supply of E15 and E85 at the retail station level. Stillwater has considerable experience in the transportation fuels distribution space.

Stillwater evaluated the current state of fuels distribution, from the supply source though the pipeline and terminal network to the service station and to the consumer. For E85, Stillwater found that there are enough E85 stations and E85 dispensers in the U.S. to substantially increase the volumes of ethanol used in transportation fuels. The simplest case where E85 throughput is increased in the roughly 3,100 existing E85 stations with no new hardware required can increase E85 sales by 1.674 billion gallons per year (bgy) and increase ethanol usage by 1.108 bgy if EPA would only provide sufficient economic incentives to current FFV owners using E10. This is very low hanging fruit in terms of increasing renewable fuels usage.

Stillwater analyzed the reasons for the current low consumption of E85 and found that E85 needs to sell below its energy parity value compared to E10 in order to increase sales to price conscious E10 consumers. Stillwater found that EPA’s recently established and currently proposed RFS renewable standards fall short of providing a sufficient driving force to increase D6 RIN value to the point where E85 prices can be set far enough below energy parity with E10 to establish a tipping point where larger E85 sales volumes enable even lower E85 prices to the consumer.

Stillwater also found that ethanol volumes can be increased significantly through the use of E15 or E85 by making relatively modest investments to expand the infrastructure for delivering E85 or E15.